All Eyes On New Product Adoption, Revenue For DDD, SSYS Q4s: Deutsche

By Teresa Rivas

Both 3D Systems (DDD) and Stratasys (SSYS) are reporting earnings in next week and Deutsche Bank analyst Sherri Scribner (who has Buy ratings on both names) writes that the focus will likely be on new product adoption.

She notes that both companies have already given full year guidance for 2014, which means it’s not likely that there will be any big surprises from the reports. Therefore, she sees investors focusing on updates about what is “driving increased OpEx spending this year, and if the companies have seen positive uptake of new products announced at EuroMold and CES.”

Read her thoughts on each company’s upcoming report:

3D Systems: prioritizing top-line growth over near-term profitability: On Feb 5, DDD provided an update to FY-13 expectations, indicating revenue would be $513-$514M, which was in line with past guidance. However the company guided EPS to $0.83-$0.87, which was lower than prior guidance, driven by increased investments in the business to support new product introductions. The company also provided 2014 guidance, of revenue of $680-$720M, and non-GAAP EPS of $0.73-$0.85. EPS guidance was significantly lower than expectations as the company will continue to invest in new products this year in order to drive long-term growth. While the stock was down on the news, shares have since recovered some of the declines, which we believe reflects investors’ focus on top-line growth. We remain positive on the company driven by strong revenue growth supported by solid bookings in C4Q-13, and we expect increased investments in new products to begin to bear fruit later this year.

Stratasys: MakerBot driving positive growth, but a drag on EPS: On Jan 14, SSYS released FY-14 expectations, guiding revenue to $660-$680M, and non-GAAP EPS to $2.15-$2.25. EPS guidance was lower than Street expectations, largely driven by a higher-than-expected share count and modestly higher OpEx. The MakerBot acquisition is expected to continue to benefit revenue growth, however stock incentives around the MakerBot agreement will drive share count higher through FY-14 if the company delivers on its growth targets. In addition, SSYS is investing in its business in FY-14, which will drive R&D and SG&A spending higher. We remain positive on these investments as we expect new products and materials to drive further adoption of 3D printing in the market. We also remain positive on the MakerBot acquisition and the company’s ability to deliver on its growth targets.

Overall, Scribner writes that she looks to revenue growth as the key metric in ranking success in the 3D space, given that the industry is in its early stages. Later, earnings per share will become the more relevant number, but for now “we believe investments in new products and technologies is more important than delivering on EPS.”

She has a $115 price target on 3D Systems and a $160 price target on Stratasys.

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